Lenders cut mortgage rates in start of price war as struggling homeowners receive a needed boost

Struggling homeowners received a boost yesterday after a five-year fixed-rate mortgage deal below 5 per cent went on sale for the first time since June.

Brokers said a ‘full-blown price war’ was now ‘well and truly under way’ as the pace of interest rate cuts has intensified.

Britain’s biggest lenders have made a series of rate reductions in recent days, giving borrowers much-needed respite after rates soared over the summer.

Yesterday, a five-year fixed-rate deal priced at 4.99 per cent was announced by The Mortgage Works, which is owned by Nationwide Building Society.

The home loan is for buy-to-let borrowers only, charges a 3 per cent fee and is available to those with a loan-to-value ratio of 55 per cent or below.

It is the first fixed-rate home loan to fall below the 5 per cent mark since the end of June, according to experts.

The best five-year fixed rate residential mortgages for buyers was Santander’s 5.1 per cent on Thursday, while the best remortgaging five-year fix was 5.22 per cent with Cumberland Building Society, according to broker L&C.

Broker Ranald Mitchell, of Charwin Private Clients, said the new 4.99 per cent rate would put other lenders under pressure to follow suit.

‘Seeing rates starting with a four is a sight for sore eyes and could provide a stimulus to the market and borrower confidence,’ he said.

Gary Bush, financial adviser at MortgageShop.com, said lenders had ‘moved from shut-up-shop mode to full-blown price war mode’, adding: ‘The mortgage rate war is well and truly under way and it’s looking likely that there will be a busy end to 2023.’

Halifax, the UK’s biggest lender, has today slashed rates for new customers by up to 0.5 percentage points. It now offers a five-year fixed deals at 5.15 per cent. Coventry Building Society has also reduced its rates today.

The home loan is for buy-to-let borrowers only, charges a 3 per cent fee and is available to those with a loan-to-value ratio of 55 per cent or below (Stock Image)

Barclays announced rate cuts yesterday, with plans to reduce costs by up to 0.1 percentage points.

Earlier this week, Nationwide announced it would reduce borrowing costs by as much as 0.29 percentage points, while Santander has slashed its deals by up to 0.14 percentage points.

Challenger banks Skipton Building Society and MPowered Mortgages are among those to have already made further reductions.

The cuts will further bolster hopes that mortgage costs have peaked.

Bank of England governor Andrew Bailey told MPs last week that the end of rate rises was now ‘much nearer’ – but also warned that borrowing costs could still increase due to high inflation.

Interest rates have been hiked 14 times since December 2021 to 5.25 per cent, piling on the pain for borrowers as the Bank of England battles to get inflation under control. They are expected to go up again – to 5.5 per cent – next week.

Bank of England governor Andrew Bailey told MPs last week that the end of rate rises was now ‘much nearer’ – but also warned that borrowing costs could still increase due to high inflation

The Bank has been urged to stop increasing interest rates amid fears of a recession after official figures released on Tuesday showed GDP shrank by 0.5 per cent in July.

The average two-year mortgage deal still remained at 6.65 per cent on Thursday, with typical five-year rates at 6.14 per cent, according to rate scrutineer MoneyfactsCompare.

Homeowners have been forced to watch borrowing costs soar in recent months. But lenders have been cutting their rates since mid-July after data showed that inflation had slowed beyond expectations.

Jamie Lennox, of broker Dimora Mortgages, said a sharp fall in house sales was forcing lenders to reprice in a bid to gain as much market share as possible.

‘It comes as no surprise the outlook is shifting. The concern is that these reductions are too little too late to save the housing market,’ he said.

House prices fell at the fastest rate in 15 years in August, according to lender Halifax. Higher interest rates have hit buyer demand, forcing many people to delay a property purchase in the hope that rates fall back in the coming months.